Sanctions and restrictive measures related to Russia and Iran continued to increase, with a revived legislative focus on both. Efforts targeting China also continued both by the Administration and Congress, primarily with respect to foreign investment screening — which will likely continue into the next Congress.
In response to Russia’s annexation of Ukrainian territory, the Biden Administration imposed sanctions on “14 persons in Russia’s military-industrial complex, including two international suppliers, three key leaders of Russia’s financial infrastructure, immediate family members of some of senior Russian officials, and 278 members of Russia’s legislature.” Treasury’s Office of Foreign Assets Control (OFAC) also explicitly stated that the U.S. would impose secondary sanctions on those supporting Russia following its sham referenda, purported annexation, and continued occupation of the Kherson, Zaporizhzhya, Donetsk, and Luhansk regions of Ukraine. This follows a pattern of the behavior with respect to expansion of sanctionable conduct and targeting sanctions evasion networks. Both the Treasury and Commerce departments imposed additional sanctions and export restrictions on the provision of quantum computing technologies to Russia and Belarus. The Administration also designated Russia’s Main Intelligence Directorate (GRU) and three other military space entities for operating in the defense and related materiel sector of Russia’s economy. The Administration also targeted Russian sanctions evasion networks, including a Russian official involved in the deportations of Ukrainian children. The Department of Justice also indicted Russian oligarch Oleg Deripaska, his girlfriend, and a U.S. associate for sanctions evasion. Finally, repeated Treasury warnings on the use of Russia’s Mir payment system has led to Turkey, Kazakhstan, and Vietnam ceasing the use of one of the few payment cards still available to Russian bank clients.
Against this backdrop, U.S. allies and partners continue to impose sanctions on Russia. The EU is expected to formalize its 8th round of sanctions in the next meeting of the bloc’s prime ministers in October, targeting more relevant sectors of the Russian economy and people responsible for both Russian military operations in Ukraine. It will also address the annexation of Ukrainian territory in addition to NATO formally asserting that damage to the Nord Stream pipeline was the result of sabotage. Expect significant responses from the U.S. and other G-7 members, some of which could be coordinated.
The Administration released an Executive Order (EO) giving the Committee on Foreign Investment in the United States (CFIUS) more national security risk oversight responsibilities, including responding to evolving risks to the resilience and security of various supply chains, including defense, microelectronics, artificial intelligence, clean energy, quantum computing, and biomanufacturing. In an indirect challenge to China, the EO also set cybersecurity priorities for CFIUS as it reviews transactions involving foreign persons, particularly those from competitor or adversarial nations, interested in investing in the United States. Also, along the sidelines of the United Nations General Assembly, Secretary of State Anthony Blinken and the foreign ministers from Australia, India, and Japan issued a joint statement reiterating their countries’ commitment to a stable, open, and secure cyberspace and support for regional initiatives to eradicate ransomware and other illicit cyberspace activities.
Measures against China and Chinese reactions continued through the reporting period, although at a slower rate than Russia. In addition to the CFIUS-related EO as noted above, the Federal Communications Commission (FCC) banned two telecommunications services companies— Pacific Networks Corp, its wholly-owned subsidiary ComNet (USA) LLC and China Unicom (Americas) — on national security grounds. Huawei and ZTE are also on the FCC’s list. Concurrently, the Chinese government sanctioned the CEOs of Raytheon Technologies and Boeing Defense, Space and Security, for selling armaments to Taiwan. The companies themselves had been previously sanctioned by China.
During the reporting period, the Administration increased the number and type of sanctions designations against Iran for its response to continuing anti-regime protests, its cyber activities, and the impasse over the resuscitation of the Iran nuclear agreement. OFAC targeted a sanctions evasion network related to Iran’s petroleum and petrochemical sector, while clearly stating in its press release that these designations would likely be lifted if Iran returns to the nuclear deal. OFAC designated Iran’s Morality Police and other security officials for violence against women and peaceful protesters. Concurrently, the Administration also revised and broadened a general license permitting the export of internet and censorship circumvention technologies to Iran. Expect the Administration to continue to target specific sanctions evasion networks without hitting any systemically significant targets.
As part of the Administration’s comprehensive framework for the regulation of digital assets, the Treasury Department issued a preliminary illicit finance risk assessment (see Sanctions Watch Exclusive: Tornado Cash 2) , with another risk assessment on decentralized finance due by the end of February 2023 and an assessment on non-fungible tokens by July 2023. This will likely take on an increased importance with respect to both Russia and Iran. Russia has reportedly unveiled a mechanism for cross-border crypto payments, and the Central Bank of Iran has reportedly started a pilot of a central bank digital currency that may eventually include cross-border payments. Expect significant pushback from the Administration on these mechanisms.
The Senate Committee on Banking, Housing and Urban Development held a hearing on proposals for outbound foreign investment screening, with a particular focus on China. The key debate was over the scope of an outbound investment regime and the appropriate statutory boundaries. During the same reporting period, multiple senators reportedly wrote to Director of National Security Avril Haines to consider a ban on chips from Chinese semiconductor company Yangtze Memory Technologies Co, noting the past description of that company as having extensive links to the Chinese Communist Party.
Congress was in session through September 29, when the Senate and House passed a stopgap spending bill funding the government through mid-December and supplemental funding for Ukraine. Congress held a series of hearings (Senate Banking Committee and Senate Foreign Relations Committee) and introduced legislation to enact an oil price cap. For more information, see the above Sanctions Watch Exclusive on the Russian Oil Cap. In the House, HR 6846, the CORRUPT Act – a bill requiring a determination as to whether dozens of Russian persons meet the criteria to be subject to sanctions under laws that authorize sanctions relating to corruption or human rights violations – passed. This is the latest in a series of Russia sanctions bills that have yet to move in the Senate.
On May 11, the House passed the following House Financial Services Committee bills:
Finally, of particular note, Sen. Bill Hagerty led a letter to the U.S. Department of the Treasury along with Senators Thom Tillis (R-NC), Steve Daines (R-MT), Cynthia Lummis (R-WY), Tim Scott (R-SC), and Mike Rounds (R-SD) calling on the Biden Administration to extend sanctions or related restrictions to Russia’s National Credit Payment System.
National Defense Authorization Act
The National Defense Authorization Act will be voted on after the November midterms, although staff and member level negotiations over provisions have already begun. While dozens of amendments were introduced, this means that any Senate amendment process, if there is one, will be very limited.
Watch for additional sanctions designations along the lines of multilateral meetings or coordinated action in response to Russian activities in Ukraine.
Also watch for additional Iranian networks to be designated for human rights abuses, although the probability of structurally significant designations is low.